Delaware Supreme Court Ruling a Defeat for Shareholder Activists
In a defeat for activist shareholders, the Delaware Supreme Court has declared invalid a proposed bylaw that would require a computer company to reimburse dissidents for the cost of getting elected to the corporate board.
The court ruled the proposal violated state law because it would force the directors of CA Inc. to spend corporate funds in inappropriate cases in violation of their fiduciary duty, Bloomberg News reports.
The court ruled under a procedure allowed under a state constitutional amendment adopted last year that permitted the Securities and Exchange Commission to seek court decisions, the Wall Street Journal reports (sub. req.). The court answered two questions, saying the proposed bylaw was a proper subject for shareholder action, but it violated state law.
John Olson, a lawyer at Gibson, Dunn & Crutcher, saw a silver lining in the decision for shareholder activists. “The court is soundly affirming that shareholders have the right to propose bylaws relating to the process of electing directors,” he told the Wall Street Journal. “I think people will try to be creative in ways of using state law to get access to the corporate proxy.”
But Richard Ferlauto, director of pension investment policy for the labor union that sought the bylaw, told the newspaper that the focus should now “be on the Securities and Exchange Commission and the creation of an appropriate right of shareholder access at the federal level.”
